Small Business and Entrepreneurship in Arkansas: Access To Capital and Service Delivery

S. HRG.
108565
SMALL BUSINESS AND ENTREPRENEURSHIP

IN ARKANSAS: ACCESS TO CAPITAL AND
SERVICE DELIVERY
FIELD HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS AND

ENTREPRENEURSHIP
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
FEBRUARY 19, 2004
Printed for the Committee on Small Business and Entrepreneurship
(
Available via the World Wide Web: http://www.access.gpo.gov/congress/senate
U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON
94-955 PDF
2004
For sale by the Superintendent of Documents, U.S. Government Printing Office

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COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

ONE HUNDRED EIGHTH CONGRESS
OLYMPIA J. SNOWE, Maine, Chairman
CHRISTOPHER S. BOND, Missouri
JOHN F. KERRY, Massachusetts
CONRAD BURNS, Montana
CARL LEVIN, Michigan
ROBERT F. BENNETT, Utah
TOM HARKIN, Iowa
MICHAEL ENZI, Wyoming
JOSEPH I. LIEBERMAN, Connecticut
PETER G. FITZGERALD, Illinois
MARY LANDRIEU, Louisiana
MIKE CRAPO, Idaho
JOHN EDWARDS, North Carolina
GEORGE ALLEN, Virginia
MARIA CANTWELL, Washington
JOHN ENSIGN, Nevada
EVAN BAYH, Indiana
NORMAN COLEMAN, Minnesota
MARK PRYOR, Arkansas
WESTON J. COULAM, Staff Director
PATRICIA R. FORBES, Democratic Staff Director and Chief Counsel
(II)
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C O N T E N T S
OPENING STATEMENTS
Page
Pryor, The Honorable Mark, a United States Senator from Arkansas ...............
WITNESS TESTIMONY
Watts, Joe David, Former Liquidation Officer, Small Business Administration, Conway, Arkansas .......................................................................................
Grimes, Keith, Commercial Loan Officer, Pine Bluff National Bank, Pine
Bluffs, Arkansas ...................................................................................................
Roderick, Janet, State Director, Arkansas Small Business Development Center, Little Rock, Arkansas ...................................................................................
Gomez, Eduardo, Owner, Andina Cafe & Coffee Roastery, LLC, Little Rock,
Arkansas ...............................................................................................................
Blair, Daniel, General Manager, Daniel Utility Construction, Inc., Little Rock,
Arkansas ...............................................................................................................
Walls, C. Sam, Executive Vice President, Arkansas Capital Corporation, Little
Rock, Arkansas .....................................................................................................
Knight, Philip, Executive Vice President, Small Business Lending, Arkansas
National Bank (ANB), Fayetteville, Arkansas ..................................................
Hester, Kevin, Executive Vice President, First State Bank and Director, National Association of Government Guarantee Lenders, Conway, Arkansas ....
Hinton, Samuel W., Small Business Executive, Metropolitan National Bank,
Little Rock, Arkansas ..........................................................................................
Wilson, III, Odies, Intergovernmental Relations Manager, City of Little Rock,
Little Rock, Arkansas ..........................................................................................
Harris, III, Samuel L., Executive Vice President, Arkansas National Bank,
Springdale, Arkansas ...........................................................................................
Davis, Tyronne, Owner, Davis Oil and Petroleum, Little Rock, Arkansas .........
King, Charles, Executive Director, Arkansas Regional Minorities Supply and
Development Council (ARMSDC), Little Rock, Arkansas .................................
ALPHABETICAL LISTING
AND
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APPENDIX MATERIAL SUBMITTED
Blair, Daniel
Testimony ..........................................................................................................
Prepared statement ..........................................................................................
Davis, Tyronne
Testimony ..........................................................................................................
Gomez, Eduardo
Testimony ..........................................................................................................
Grimes, Keith
Testimony ..........................................................................................................
Harris, III, Samuel L.
Testimony ..........................................................................................................
Hester, Kevin
Testimony ..........................................................................................................
Hinton, Samuel W.
Testimony ..........................................................................................................
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(III)
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Page
Continued
King, Charles
Testimony ..........................................................................................................
Knight, Philip
Testimony ..........................................................................................................
Pryor, The Honorable Mark
Opening Statement ...........................................................................................
Roderick, Janet
Testimony ..........................................................................................................
Walls, C. Sam
Testimony ..........................................................................................................
Watts, Joe David
Testimony ..........................................................................................................
Wilson, III, Odies
Testimony ..........................................................................................................
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SMALL BUSINESS ASSISTANCE IN ARKANSAS:

ACCESS TO CAPITAL AND SERVICE DELIVERY
THURSDAY, FEBRUARY 19, 2004
UNITED STATES SENATE,

SMALL BUSINESS AND ENTREPRENEURSHIP,
Washington, D.C.
The Committee met, pursuant to notice, at 9:30 a.m., in the Reynolds Business Center, Room 350, University of Arkansas, 2881 S.
University Avenue, Little Rock, Arkansas, Hon. Mark Pryor presiding.
Present: Senator Pryor.
COMMITTEE
ON
OPENING STATEMENT OF THE HONORABLE MARK PRYOR,

A UNITED STATES SENATOR FROM ARKANSAS
Senator PRYOR. Well, it looks like most everybody is here, maybe

one or two that will come in in a few minutes. First, let me go
ahead and call the meeting to order as the Chairman of this field
hearing for the Small Business Committee of the United States
Senate.
I am on the Committee in Washington, and you know as well as
I do how important small business is to this country, to this economy and certainly to this state. There is no doubt about the fact
that small business and agriculture really is the backbone of Arkansas economy. We have some great Fortune 500 companies here,
we are proud to have them and very proud of what they do, but
small business really is the backbone of Arkansas economy.
Before I get going, let me thank a few people. First, of course,
is Senator Olympia Snowe of Maine who is the Chair of this Committee. She graciously allowed this to happen, and also sent Gregory Wach, one of her staff members, to participate. Kevin Wheeler
is here as well from the Committee staff, and we appreciate Kevin
and Greg being here. Senator John Kerry could not be here today.
I dont know where he is today. Im not sure he knows where he
is today. He is out in other parts of the country doing what he is
doing, but he is actually what they call the Ranking Member of the
Committee. He is the leading Democrat on the Senate Committee
on Small Business and Entrepreneurship.
Also, I have to thank UALR. They have been so fantastic to let
us use their facility and just really rolled out the red carpet for us.
I mean everything from food to just all the logistics, whatever we
needed, they have been fantastic, and the Arkansas Small Business
Development Center. They have just been great. They have just
been really accommodating and very, very helpful in every way.
(1)
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Janet Roderick, Laura Fine, who I used to work with her husband, Milton Fine. Jennifer Bonds, John Harris, and Kim Fox and
Sandra Vail have all been extremely helpful, and a lot of other
folks here on campus.
Let me just run through some opening comments, and just say
good morning to everybody, and I want to thank everyone for being
here at the UALR Reynolds Business Center. I am proud of this
facility, because the Don Reynolds Foundation and UALR worked
together to make this a reality, and it is just going to do nothing
but help UALR and help Arkansas businesses grow. It is just fun
to watch this unfold.
The witnesses, were going to go through their names here in a
minute, but we really, really appreciate all of you being here, taking your time and working with us. I know you put a lot of work
into being here. You have had to carve out quite a bit of time and
effort on your schedule. Also for everybody else that is in the room
that is just here to watch and listen, I want you to feel like you
can participate in the sense that certainly we look forward to your
comments, and it would probably be most helpful if you could write
down your comments, maybe e-mail them or fax them to us.
We are going to leave the record of this Committee hearing open
after we adjourn today. We are going to leave it open for several
days and allow people to send in their comments and send in follow-up thoughts, etc. All that will be made part of the record and
will be given to the Small Business Committee. What we are doing
here is really taking the Arkansas business community as it reflects the national business community, and taking these good
ideas back to Washington for people there.
You know, one thing I have noticed is that we find ourselves in
a sluggish economy. We all know that. For the last 3 years we have
had some ups and downs in this economy. It is an economy that
does not have much job creation. That is really one of the things
that you keep hearing people talk about is the lack of jobs that are
created.
I have not seen the statistics from the most recent month, but
I know in December of last year, December 2003, this national
economy, the entire economy when you net it all out, the national
economy created 1,000 new jobs. That is not a lot of new jobs. A
thousand new jobs nationwide is stagnant job creation for the economy.
We all know the statistics, there is no doubt that small businesses in this country and in this state actually create jobs. Last
week we had a hearing in Washington, we had the SBA Administrator there. We talked to him about a lot of different issues, and
now this is kind of a local follow-up. This is a time for you-all to
have input. Your input is really critical to the process. I am going
to say that I am concerned that the Presidents fiscal year 2005
budget does not serve small business in Arkansas or the Nation
very well.
The Administration definitely claims that they support small
business and want to help small business, but I think there is a
time when there is rhetoric versus reality, and the Small Business
Administrations budget is one of those instances where the reality
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is that actually there are a number of cuts in the SBA programs.
I think that is unfortunate. I oppose those.
In fact, last week one of the questions I asked one of the panelists was At the risk of sounding like a political pollster, tell me,
is the SBA, in your view, going in the right direction or the wrong
direction? All of them just lined up there, and they said, Its the
wrong direction, and they listed out the reasons why. I would like
to hear from you on that.
One thing that has concerned me, we have had a number of
questions and inquiries and even complaints about this, is the fact
that the SBA has been consolidating some of its staff, and what
they have done is theyve cut out certain people in local offices.
This is particularly true with liquidation efforts around the country. People that specialize in that in SBA offices, and they have
downsized, and they have moved those jobs to Herndon, Virginia,
which is in suburban Washington, D.C. I think that Arkansas,
small businesses have had a significant reduction in the access to
staff and expertise in the SBA office in Little Rock.
One of the problems with this so-called work force transformation is the way it was handled. Man, we have heard a number of complaints from the business community in Arkansas about
the way this was handled. I can speak for Senator Lincoln and
Congressman Snyder, and I know they have gotten it, too, because
I have talked to them about it. You-all may know the story, and
you may not, but a number of employees around the country, including some here in Arkansas, was basically forced out of the local
office by giving them, I think it was, 7 days to respond to an offer.
If they took the buyout, so to speak, they could not work for the
government for 5 years. It really was coercion.
I have gotten e-mails and letters from not just here in Arkansas
but from around the county I want to share with you later. I think
that certainly we are going to see an adverse impact on the SBA
in Arkansas, and the small business development centers will inevitably be impacted, I think, as well because of this budget.
Also, something that is a real concern is the 7(a) loan program.
You-all know a lot about that. You know a lot more about it than
most people do, but certainly the 7(a) loan program, the developments there are very troubling. The fact that they are increasing
fees, they want to go to a zero appropriation budget. There are just
a lot of things in that 7(a) program that is supposedly the flagship
of the SBA administration.
It is very troubling to see the direction that we seem to be going.
They are doing this in Washington all in the name of savings. You
know, they say they are saving the taxpayer dollars. Well, I just
dont really agree with that, because I think that when you can
strengthen small businesses, that means they are hiring people,
those people are paying taxes, those people are off the unemployment rolls, those families are working, they are buying cars, they
are making mortgage payments, etc., and I just think that, you
know, theres just a very positive ripple effect from the 7(a) program.
As well, I wanted to tell you that the microloan program has
been totally eliminated under this new budget. This is something
that is of special concern to me because Senator Bumpers actually
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created that program, and he based ityou-all may know thishe
based it on a program that was going on in Pine Bluff called the
Good Faith Fund. You know, he took this local idea that was a
good idea and brought it to Washington and reconfigured it a little
bit, but, basically, introduced it to the SBA, and it has been a very
successful program.
There are thousands and thousands of stories around the country
about the positive impact the microloan program has had, but, unfortunately, in this budget, it is eliminated. We will talk more
about that in a minute. I just think, given all the success that the
SBAs had and all these programs and given the stimulative nature
of these programs, these loans, these guarantees to our economy,
and also the positive ripple effects that really help our economy
and help our country, I just dont think it is wise to be cutting
these programs at this time, especially given the state of the economy that we are in right now.
What I want to do, is I want to sort of get out of the way and
introduce our first panel. What I would like everybody to do, if possible, we have about 2 hours here this morning, and what I would
like to do, if possible, is have people, the panelists identify themselves and kind of say who they are and what they do. Also, try
to keep your opening comments to maybe 3 minutes, 5 minutes
maybe at the most.
I know some of you have submitted written testimony, which is
great, it is already part of the record. We are going to include all
that as part of the record. We want to try to keep our opening comments somewhat short and then have plenty of time for questions
and answers and discussion.
If I may, I would like to thank everybody again for being here
and go ahead and introduce the first panel. Thats going to be Joe
Watts, Keith Grimes, Janet Roderick, and Eduardo Gomez. Joe, if
you dont mind going ahead and leading off for us, and, again, talk
3 to 5 minutes, and well go from there.
STATEMENT OF JOE DAVID WATTS, FORMER LIQUIDATION
OFFICER, SMALL BUSINESS ADMINISTRATION
Mr. WATTS. Thank you.

Senator PRYOR. I am sorry, David, did I say Joe? I am sorry.
David Watts. I am sorry.
Mr. WATTS. Either one. It doesnt make any difference.
Senator PRYOR. Okay.
Mr. WATTS. Well, I happen to be one of the lucky ones that was
forced into retirement by the SBA. I was a former Liquidation Loan
Officer.
Back on September 10, 2003, I received notification via Federal
Express by the SBA that I was engaged in the systematic review
of its programs and business processes. As a result, it became apparent, that some of the longstanding processes could be streamlined and made more efficient.
The SBA reviewed and concluded that the loan liquidation practices and oversight of this activity conducted by participating lenders is outdated, does not reflect the best interest of the lending industry, does not take full advantage of the current technology, and
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costs too much of the per loan basis. I would like to see this being
backed up, and I would like to know what this technology is.
The SBA targeted most everyone nationwide that spent at least
25 percent of their time doing liquidation activities and reassigned
them to Herndon, Virginia, with the exception of Alaska, Maine,
North Carolina, a few other states. This was based on an administrative cost allocation survey that everyone did back in April 2003.
Not that this will make any difference, because I was the primary
liquidation loan officer, and that was my function, and, you know,
even though I didnt do it properly, this was still my function, and
thats exactly what I did.
In a small office such as ours, we all wear many different hats.
Of course, we all do different things on a daily basis. I dont keep
time sheets on exactly what, however, I do fill in a lot of slots for
different people.
The SBA offered early outs to some employees back on September 30, 2003. My counterpart, Ray Chappa, which was the
other Liquidation Loan Officer, took the early out. He was coerced
into taking the early out, like you did mention. That left me as the
sole Liquidation Loan Officer, so I had to pick up his portfolios.
After Ray left, that left me with in excess of 275 loans in various
stages of liquidation.
The SBA requires us to purchase the loans, review the loans and
all the documentations, and try to get them ready for purchase.
Most of our lenders are small local lenders or small town lenders.
We dont really have the major bank systems here in Arkansas. On
December 2, 2003, I received my notification that I had been selected for reassignment to Herndon, Virginia, and had until December 15th to either accept it or decline. On December 15, 2003, I did
accept the reassignment, but I did note on there that I did accept
this under extreme duress for fear of losing my job.
On January 6, 2004, I notified the SBA that I had changed my
mind and withdrew my acceptance and planned to retire. I wanted
to work until January 30th to help get things cleared out before I
left because the office was extremely shorthanded. The SBA would
not allow me to do this. They said that it was because I was supposed to report to Herndon, Virginia, on January 20, 2004, and
that I would be placed on inactive pay status effective January
20th. So, I retired on January 20th.
When I left, none of the files had been shipped, nor had they
been notified, that the files could be shipped to Herndon as of yet.
Since then, they had been notified the files could be shipped to
Herndon, but the files are still being held in limbo, and theyre
waiting to be shipped. Even if they could be shipped, its going to
be quite a while before they can be shipped to Herndon.
As of right now, its been over a year since the Arkansas district
office has had a District Director. Linda Nelson had been the acting
District Director and had done an extremely good job, but she has
also been transferred to Herndon. The Arkansas district office has
not had a Director for quite some time.
Senator PRYOR. Okay. Thank you. Like I said, I will follow up
with some questions on that in a few moments.
Keith.
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STATEMENT OF KEITH GRIMES, COMMERCIAL LOAN OFFICER,
PINE BLUFF NATIONAL BANK
Mr. GRIMES. I am Keith Grimes with Pine Bluff National Bank.

Senator, thank you for having me here today to comment on the
recent changes in the staffing of the SBA and resulting effects of
the SBA Lending Act, particularly on Pine Bluff National Bank.
Just to let you know, we were sort of caught unaware as to what
was happening here. Just to tell you how that came about, I telephoned the SBA Arkansas regional office in January to speak with
Mr. Watts on a loan we had in liquidation. I was informed at that
time that Mr. Watts and Ray Chappa, the other gentleman in the
Liquidation Department, had both retired and all present and future liquidations of SBA guaranteed loans would be processed
through the new facility at Herndon, Virginia. The liquidation files
in the possession of the SBA Arkansas regional office would be
transferred to the National Liquidation Guaranty Purchase Center,
and I will be informed at a later date by the staff at the center
when theyre able to accept my forthcoming purchase request on
this particular loan.
I would like to comment just real quickly and commend Mr.
Watts and Mr. Chappa. I see Jim Coffee and the rest of the SBA
staff here at the Arkansas district office, how well theyve helped
us here, and I think that particularly in Jefferson County, its
helped our economy there.
Going on, I believe a delay in the processing on these liquidation
loans will affect us in several ways. The first three, particularly affect Pine Bluff National Bank. We have interest that will have to
be written off and well have to treat them as nonperforming assets. Our reinvestment opportunities will be limited through the
guarantee not being fulfilled in a timely manner. Our delinquency
rates will be driven higher.
The fourth thing, I believe is not only important to Pine Bluff
National Bank and other lenders, but to the economy as a whole.
Here in Jefferson County and Pine Bluff National Bank, I believe
other lenders would be more hesitant to underwrite new SBA guarantee loan requests. This greatly affects us there.
Stating the obvious is Pine Bluff Nationals opinion that the interest of all parties affected would be better served by expediting
the staffing of the National Liquidation Guaranty Purchase Center.
I would like to thank you again for letting us voice our concerns
here today.
Senator PRYOR. Thank you.
Janet.
STATEMENT OF JANET RODERICK, STATE DIRECTOR,
ARKANSAS SMALL BUSINESS DEVELOPMENT CENTER
Ms. RODERICK. Thank you. Senator Pryor, and representatives of

the Small Business and Entrepreneurship Committee, Im Janet
Roderick, State Director for the Arkansas Small Business Development Center.
Senator Pryor, on behalf of the Arkansas SBDC, Id like to thank
you and the Committee for inviting me to testify at this important
hearing. Its an honor for me to represent the University of Arkansas at Little Rock College of Business and welcome you to this fa-
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cility built with funding from Donald W. Reynolds, an entrepreneur, and certainly he started out as a small business person.
The Arkansas SBDC is a premier provider of small business assistance in Arkansas. As you know, the SBDC program is funded
by the U.S. Small Business Administration, the University of Arkansas at Little Rock, and six other University partners. Those
University partners are Henderson State University in
Arkadelphia, University of Arkansas at Fayetteville, University of
Arkansas at Fort Smith, Arkansas State University, Southern Arkansas University and University of Arkansas at Monticello.
The Arkansas SBDC program has been in existence since 1979
providing management and technical assistance to small business.
The program continues to contribute significantly to the economic
impact in the state through the small businesses we serve each
year. We are one of the few economic development programs that
measure our impact. For example, in the past 5 years, our Arkansas small business clients have created over 4,000 new jobs. These
small businesses have obtained over $200 million in funding for
their businesses.
Senator Pryor, you can be very proud of the Arkansas SBDC.
Each year, our economic impact, as measured by an outside consultant, has one of the most significant returns on investment of
the taxpayer dollars in the nation. For every one dollar in Federal
funds spent in the Arkansas SBDC, SBDC clients generated $4.86
in new tax returns. Thats a good investment in any economy, any
time I can put $1 in and get over $4 back in one years period of
time, I believe is a great investment.
The SBA funding for the SBDC program nationally has remained
at a level funding since 2000. Prior to that, the last SBA increase
was in 1994. In 2000, the funding formula was adjusted, and approximately half the states received a decrease. We actually got a
slight increase, $6,000. Not near the rate of inflation.
In order for the ASBDC to continue to provide services to the
small business community, we have relied heavily on reorganizing,
working smarter, using technology to deliver our services, and, of
course, an increase in support and funding from our universities
and banking partners.
Two examples of how the Arkansas SBDC has been working
smarter are, first, the SBDC is one of the early adapters of the
Internet and website utilization. With the assistance of Aristotle,
a small business here in Little Rock, the SBDC recently redesigned
our website to provide information so the small business would use
it. In 2003, we had over 300,000 visitors. The most popular
downloads were the feasibility workbooks, with nearly 26,000
downloads. Of course, New Venture Guides and How to Start
Your Business.
We also send out e-news bulletins, which are sent out electronically to people who have requested to be subscribers. One provides
basic business information, government regulation updates, and details on upcoming training events. The other is a technology related
e-news letter providing technology news, grant opportunities, and
SBIR SBTR information. We continue to work smarter, as I mentioned, but weve also had to reorganize.
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This is a map of our service areas. You can see that one service
area has over 12,000 square miles to serve. At one time, we had
twelve offices; now weve gone down to seven offices with our reorganization. At that same time, the universities and banks have
come to the plate and helped us with additional funding. Our funding from the SBA has increased 4.1 percent in the last 10 years.
Just the basic rate of inflation certainly has increased more than
that.
Senator Pryor, our program is authorized nationally for $125 million. Yet, it continues to be appropriated at $88 million, which is
level funding for the Arkansas SBDC. Arkansas universities and
banks recognize the importance of small business assistance to the
state. Where is the SBA? Thank you.
Eduardo.
&
STATEMENT OF EDUARDO GOMEZ, OWNER, ANDINA CAFE
COFFEE ROASTERY, LLC
Mr. GOMEZ. Good morning. My name is Eduardo Gomez. I am a

small business owner, and I guess my comments are probably most
relevant to the microloan program.
Senator Pryor, representatives, ladies and gentlemen, good morning. I thank you for soliciting my comments. Im proud to live in
a democratic country governed by the rule of law where the government represents the will of the people and listens to them. I also
want to thank UALR and the Small Business Development Center
for hosting this meeting. I have had the opportunity to use their
consulting services locally and have found them to be both available, professional, reliable and serious.
I was born in Colombia, South America. I am a naturalized U.S.
citizen. I have a Bachelors degree in Economics and a Masters degree in Social Work from the University of Wisconsin, Milwaukee.
My wife and I recently celebrated 33 years of marriage. We have
two grown children who are both college educated, married, and
most importantly are good moral contributing citizens. We have
two grandchildren. I came to Arkansas in 1983 as an International
Marketing and Sales Manager with a multi-national corporation
headquartered in Arkansas.
In the summer of 1988, due to corporate reorganization, my wife
and I were faced with the decision of uprooting our then teenage
children or staying in Arkansas. We chose the latter. In order to
support our family, I started an export management company
which exported U.S. manufactured products abroad. These products were commercial water systems. Our main market was in the
Middle East. In August, 1990, when Iraq invaded Kuwait during
the first Gulf War, I watched the undoing of our business with the
rest of the world on CNN.
Although I had to find another job, the entrepreneurial spirit
drove me to start another company some years later. This was
about 7 years ago. This new business concept was a coffee shop and
retail coffee roastery located in the river market district, which was
then empty, and which the city wanted to use as a spark for the
redevelopment of downtown Little Rock. A couple of years later, we
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had to open a separate roasting operation in a different location to
develop the wholesale side of our business, our third company.
When I was going to start my coffee shop, I needed start-up capital. I spoke to the SBA at that time, and was told that my new
company lacked a track record to qualify for an SBA loan. At this
time I wanted to borrow about $50,000. Although that did not deter
me from my final objective, it did make the road quite a bit more
difficult. Most entrepreneurs lack the capital to start a business.
Many times the capital is not very much because the entrepreneur
is willing to invest sweat equity, which usually far exceeds the
amount of the small loan and which is probably more important to
the long-term success of the business than any other single factor.
Based on my own personal experience, the entrepreneurs business acumen, his personal tenacity, discipline and sacrifice, are the
most important predictors of success. The second predictor is probably knowledge of the particular business. The third is probably
knowledge of the business administration principles in general.
None of these criteria were used to determine whether or not I
could qualify for this small loan. Instead, the criteria used were
based on conventional thinking of what a lender considers the lending parameters for minimizing the risk with an ongoing business.
Lets face it, start-up capital is risk capital, but it can also be a
doorway into the land of opportunity for those who are willing to
make the effort. The question is how to invest in those who have
the most potential for success. Someone said, we become what we
measure, and then traditional lenders are not set up to measure
these types of parameters. Certain subcultures within the United
States have actually recognized this and provide start-up capital
through a peer managed system where business peers and mentors, not bankers, help each other develop new business opportunities. The assurance of payment is based on the personal commitment of the business person to his or her peers and on their own
support and assistance to the business person. I have often thought
that this could be somehow replicated in the community at large.
Small business start-up loans can be key to get the small entrepreneur started. They are a way in which a society can prime the
productive capacity of some its entrepreneurial citizens. Maybe
rather than eliminating them, we should consider how to make
them more effective. Maybe if they were managed differently, they
could be a way for society to invest rather than spend in its future.
Thank you again for giving me the opportunity to make these comments.
Senator PRYOR. Thank you Eduardo.
Now, let me start by asking some questions. If it is okay, David,
I thought I would start with you.
The SBA has said to the Committee in Washington, centralization hasthe pilot programs, that is, have reduced liquidation time
of loans to 49 days compared to an average somewhere between
252 days to 987 days. Now, you worked in liquidation loans every
day, and that was one of your day-to-day responsibilities there. Do
those numbers from the SBA sound right?
Mr. WATTS. No.
Senator PRYOR. Now tell me why not.
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Mr. WATTS. I dont even know where they get those numbers
from. There is no way, Senator, that you can have those kind of
numbers. Once you put a loan into the liquidation status, once a
lender tells you that this loan is going to liquidation status, if properly done, as you put the loan in liquidation status, then you send
the lender a checklist of items that are going to be required by the
SBA to purchase the loan. Then the lender puts all the information
together, and sends it to you.
Once you receive that, you have to do a complete review of it,
and you hope that the lender has sent you everything that you
have requested. Which nine times out of ten is not going to be a
complete package. Then you have to go back to the lender and ask
for additional information. Youre sitting there waiting for additional information to get back to you, and the clock is still ticking.
Once you have received the complete packet, then you have to go
through the purchase package, you have to get legal, you have to
run it through legal, get their approval on it, then you have to go
through and get approval authority on it. All that takes approximately 2 weeks. Then you can do the actual purchase. The actual
purchase process can be done in a day or so.
Its a long drawn out process. Its just a matter of how much time
it takes the lender to get you all the necessary paperwork.
Senator PRYOR. Yes. In other words, each situation is different.
Mr. WATTS. Each situation is different.
Senator PRYOR. Yes. Do you know what your average was in the
Little Rock office?
Mr. WATTS. I would say the average was roughly about 150 days.
Senator PRYOR. Let me also ask this. The SBA also in this Committee hearing last week said the lenders do most of the liquidation
already and that the employees were mostly obsolete and that the
service to lenders would improve and service to small businesses
would not decrease with this consolidation. What is your view of
that?
Mr. WATTS. Well, the lenders are required to do the liquidation.
The SBA has to review all the documents the lender submits, and
do the purchase. But the lender submits all the liquidation information that the SBA requires.
Senator PRYOR. Yes.
Mr. WATTS. The SBA people are not obsolete.
Senator PRYOR. Let me, if I can, jump to Keith on a related question. First, if I may, could you characterize your bank, for the
record, as small, large, urban, rural?
Mr. GRIMES. Its a small community bank.
Senator PRYOR. Okay. Tell me in your view, if you have heard
Mr. Watts answer there, if the quality of service and all would improve and the workload would improve or increase or decrease for
your bank if you are expected to do all the consolidation. Could I
hear your comments on that?
Mr. GRIMES. Yes, sir. First of all
Senator PRYOR. I mean liquidation. Im sorry.
Mr. GRIMES. Yes, sir. Sure. I would like to say I completely agree
with what Mr. Watts just said in response to your answer. Second
of all, answering your question, I dont see how it would be any
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more efficient to centralize that out of state as far as liquidation
is concerned.
We had a staff here in Arkansas that was familiar with the area,
with the lenders, with the process, and I believe that each region
would be different throughout the country as to how you have to
liquidate collateral sometimes in these loans, and sometimes you
may get 10 cents on the dollar in Jefferson County, where you may
get 50 cents on the dollar around Dallas.
How does somebody in Herndon that knows nothing about Arkansas and the economy going to know how to work with that? I
dont believe it would beI believe at least on our end, the banks
with us liquidating, completing this, it would be much less efficient
for us to do that.
Senator PRYOR. Do you have the staff to do that right now.
Mr. GRIMES. Its me.
Senator PRYOR. It is you.
Mr. GRIMES. Yes.
Senator PRYOR. Also, have youfrom your testimony, I was not
quite sure, but have you had any contact with the Herndon office
yet?
Mr. GRIMES. No, sir. I went ahead and let them know that my
package would be coming some time soon on this particular loan,
that I have in liquidation. Other than that, I havent heard anything backwell, I take that back. When I e-mailed the Herndon
office, they acknowledged that they had received my e-mail and
that they would let me know when they were ready for me to send
in the purchase request.
Senator PRYOR. All right. Let me ask you if you know, and you
may not, about the Herndon office for the SBA, are they going to
assign certain people to Arkansas, and will you be talking to the
same people all the time?
Mr. GRIMES. That, I dont know. I know Linda Nelson is there,
I believe, but I dont know whether she was going to be assigned
to Arkansas, and whether she would be familiar with Arkansas. As
far as a particular person would be over a particular region, I do
not know. They havent communicated that to me.
Senator PRYOR. Have they communicated anything to you about
the Herndon operation?
Mr. GRIMES. No, sir. Nothing whatsoever.
Senator PRYOR. All right. If I may, Janet, I would like to jump
to you just for a second here, a few questions.
That is, I know that under this proposed SBA budget, the Presidents proposed SBA budget, they are cutting funding for SBDCs
by a million dollars. They are cutting womens business center
funding by 500,000, the 7(j) technical assistance also has a cut.
There is level funding for SCORE and veterans outreach, which
just based on inflation, could be considered a cut, and they also are
reducing budgets for staffing and resources at the district offices.
Saying all this, then at the same time, the SBA has come out
and theyve said:
The SBA believes it can provide a full range of technical assistance more effectively by using its core national delivery programs. The agency will work
through its primary infrastructure of womens business centers, veterans outreach, 7(j) technical assistance, SCORE chapters, and small business development centers and district offices to meet the needs of all small businesses.
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I was wondering if you have any comments on, again, the direction the SBA is heading under this White House proposed budget,
and if you have any comments on how you think that will actually
work here in Arkansas.
Ms. RODERICK. Yes, sir, I certainly do have opinion on that. The
SBA has on a national basis, been trying to get everybody to, as
far as the technical assistance program, to work harder with less
money, and deliver more numbers, not necessarily impact.
One of the goals seems to be to say if you shook hands with
someone, then you had an impact on their small business. Here in
Arkansas, for example, our SBDC spends an average of about 11
hours with the clients because thats where we believe we can have
some impact. We can help them put their loan package together,
we can help them access other capital. If they want to expand, we
can help identify those markets. If youre asking people to work
faster and do more numbers, youre certainly not going to have the
impact.
Also, about the veterans program, I have a particular soft spot
in my heart for that program. Its not here in Arkansas. Its located
in another state. We get referrals occasionally out of Texas. The referrals are round about, and I resent that. I dont believe that our
veterans deserve to get a phone number to call a phone number to
call a phone number to finally call somebody else to get a contact
to provide assistance for them.
The veterans program, because its underfunded, has simply not
been effective for our veterans here in Arkansas. Its just given
them more numbers to call and less response.
Senator PRYOR. One concern I have with the consolidation and
the cutting of resources is it is almost as if maybe SBA is taking
a one-size-fits-all approach. They think maybe they can consolidate
it in different offices, and whatever, and take employees out of the
local community to try to do that. My experience is that businesses
are very diverse, their needs are very diverse, what they are doing
is very diverse, and it seems that we may be losing some of that,
for lack of a better term, kind of finesse in helping businesses if
we just consolidate.
You mentioned that you spend about 11 hours per business, or
something like that.
Ms. RODERICK. Yes.
Senator PRYOR. Thats great. I think that is a lot of time. Do you
have any comments on this one-size-fits-all concept?
Ms. RODERICK. Well, youre exactly right. The SBA central office
has been trying to give the impression that one size does fit all.
Certainly, as you listen to the bankers testimony around here and
you listen to the small businesses who are going to testify, youll
see the wide differences of clients we serve and the small businesses that we serve throughout the state of Arkansas. No, one size
does not fit all, and youre absolutely right in your perspective of
what you envision.
I would like to make one statement, too. It may sound like Im
bashing the SBA, and I certainly dont mean to do that. We have
had the best district office to work with here in Arkansas for years,
and we work in partnership with them. We go out and provide
lender training, and we provide opportunities for businesses
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throughout rural Arkansas and access the expertise thats available
at our district office.
With the drastic cutbacks that theyve had, its becoming more
and more difficult for them to get out and work with our individual
bankers throughout the state and to work in partnership with us.
We have an extremely high success rate in working with our businesses to obtain capital. Thats due in great deal to the partnership
we have with this district office.
Senator PRYOR. Good. One last thing, you had a little statistic in
your comments that you said for every dollar spent there isone
dollar equals four dollars. Tell me how that works again.
Ms. RODERICK. Okay. We have an economic impact survey thats
conducted. We ask that to be conducted every year for our Arkansas businesses. We report how much money we put into the consulting, how much money goes into training, what our total budget
is, as some of the measures for the economic impact. One of the
measures is how many Federal dollars go into our program. Then
the private consultant from Mississippi surveys our clients since
its self-reported. They report how much they paid in taxes.
For example, in the year 2001, and how much did they pay in
taxes in the year 2003. They indicate whether the SBDC helped
them or not. If they believe that we did not help them, we dont
count their statistics. 95 percent to 98 percent always say weve
been extremely helpful. We then measure what their taxes were
one year and what their taxes were the next year, how those have
increased, and then how much we spend in Federal money in this
program and how much theyve paid in additional taxes.
Senator PRYOR. That is good. Eduardo, I do have a question for
you, and that is, how many employees do you currently have?
Mr. GOMEZ. I currently have about seven employees.
Senator PRYOR. You know, it seems to me that what you were
saying earlier about risk and the need for capital in small business,
even your experience, underscores the need in some cases to have
the government there to stand behind some of these loans, too, because some of these loans are risky. Using the proper, you know,
financial criteria, a lot of those loans can be made if the governments standing behind those loans.
I know that you have had a big impact on the River Market, and
you were one of the first tenants down there, werent you?
Mr. GOMEZ. I was the first.
Senator PRYOR. Yes. I remember when you were down there kind
of going solo, and it was a construction zone down there. I remember that well.
I just want to thank the panel for being here. We are actually
going to change panels. We are going to try to move along, and I
am going to take about a 3 or 4 minute break just to let you-all
get set up and get situated.
Mr. WATTS. Senator Pryor.
Senator PRYOR. Yes.
Mr. WATTS. Could I have about 30 more seconds.
Senator PRYOR. Sure. Go ahead.
Mr. WATTS. Ive got one other comment I would like to say.
My largest concern, and this is a real major concern, is what is
going to happen to the Arkansas district office of the SBA? Also the
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small business community and the SBA lenders. As it stands right
now, the Arkansas district office has 13 employees that are currently left. Nine in a professional position, and four in a clerical position. One of those professional positions is going to retire in April
or May of this year, which is going to leave 12 SBA employees.
Rumor has it that the loan division is going to be the next division
thats going to be getting their notices, and thats going to be coming up real soon.
They are going to try to set up two processing centers; theres
going to be one in California and one in Kentucky. If that happens,
youre going to lose four more professional positions. Thats going
to leave eight people left in the Arkansas district office.
Now, do you honestly and truly think that theyre going to keep
an Arkansas district office? I mean, can you honestly sit there and
tell me that theyre going to keep an Arkansas district office, per
se?
Our office worked hard over the number of years that I worked
for the SBA to gain the trust and admiration of the lending community here in this state. We were able to provide close personal
service to these lenders. I must remind you, this is Arkansas; this
is not New York or Washington. Its my opinion that this is only
going to alienate the local and small lenders from the SBA.
Thats all Ive got to say.
Senator PRYOR. Well, thank you. I think I share those views with
you. That is one of the reasons we are here. That is one of the reasons we wanted you here, because you have got that experience out
in the trenches. We appreciate your time and your commitment
that you gave to not just this country, but certainly this state and
all of our communities.
Lets switch the panels. Thank you for your time.
[Recess.]
Senator PRYOR. Okay. Lets move forward. If I may introduce
this next panel, we have the same type set up. If we could do
maybe 3 to 5 minutes, and then I will answer any questions. I
guess, Daniel, you are going to go first. Is that right? Is that okay
with you, Daniel, if you go first?
Mr. BLAIR. Thats fine.
Senator PRYOR. Why dont you go first, introduce yourself, talk
a little bit about what you do, give your comments, and then lets
just work our way around the room.
STATEMENT OF DANIEL BLAIR, GENERAL MANAGER,
DANIEL UTILITY CONSTRUCTION, LITTLE ROCK, ARKANSAS
Mr. BLAIR. Im Daniel Blair. Im the General Manager for Daniel

Utility Construction here in Little Rock. Its a second generation
family business. My parents started contracting in 1964. My comments are relative to the 7(a) program.
Some brief history is our industry and company experienced a lot
of growth in the 1990s. Then following the bubble burst in 1999,
theres been 3 years of pretty serious decline, following generally to
our general economy. We were hurt pretty bad. The industry was
hurt pretty bad. In 2 of those 3 years, we were fine. Had a great
year, in factin 2000, 2001, 2002. Last year was a challenge. We
laid off about 50 employees, and really just waited for the economy
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to start improving. Around the fourth quarter of last year, we
started seeing that, and as the economy was improving, so did our
outlooks for 2004.
That was when I actually approached Mr. Walls company about
helping us to consolidate some debt and help our cash flow problems. As you move from a period not doing extraordinarily well to
growth opportunity, cash is going to be a problem. So we hustled
around.
I was informed that the program was going to change after the
first of the year. We spent some time right between Christmas and
New Yearss trying to get this in place, and everything seemed to
look good. As of the middle of January, we were informed that no
fundings were going to happen. We didnt know what the deal was.
The people that were helping us didnt know what the deal was.
Then they came back and said, Okay, we have a lower debt maximum that we can deal with. Basically, the loan as we applied for
it, was denied.
They did offer us a different package that wasnt acceptable to
us. As it stands for me right now, we really expect 2004 to be a
record year for us in terms of growth and receipts and income. I
expect that Ill place about 50 new employees.
Senator PRYOR. Fifty?
Mr. BLAIR. Yes. Thats about what I have now. We really expect
to see a tremendous year. Its going to be a real challenge for us
from a cash flow standpoint to be able to achieve that without this
help.
The rough numbers for us were decreasing our cash flow needs
from around $40,000 to about $10,000, and stretching the loan out
over a longer period of time, but it was just really going to give us
a break near term.
I suspect that because the economy is improving, there may be
perhaps thousands of people like me, tens of thousands, around the
country that are in similar patterns. Ready to take off, and, yet,
are challenged with some of the economic issues that weve had in
the last few years.
Mr. Walls.
STATEMENT OF C. SAM WALLS, CHIEF OPERATING OFFICER,
ARKANSAS CAPITAL CORPORATION
Mr. WALLS. Thank you, Senator, and thanks for the opportunity
to talk about something that I believe has enormous importance to
the Nation. Its not just Arkansas, but its across the Nation.
I am the Chief Operating Officer of Arkansas Capital Corporation. It is a private non-profit business development corporation
that on occasion is the largest SBA 7(a) lender in the state. Like
the U.S. Small Business Administration, Arkansas Capital Corporation was formed during the 1950s to assist small businesses
with long-term financing options that were going unmet in traditional capital markets. Also, like the SBA, our parallel missions
continue to this day.
In Arkansas, as in numerous other states, small- and mediumsized businesses had the highest potential for growth of any sector
of our economy. Although improving, the current economic climate
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continues to be a very difficult one for small businesses to successfully navigate, it is in that light that Arkansas small business can
ill afford an underfunded small business loan guarantee program.
Let there be no misunderstanding. Arkansas Capital Corporation
fully supports the SBAs mission and understands the agencys importance and impact on Arkansas business community. We cannot
afford another lending holiday or further cuts to this vital program.
It is imperative that Congress and the current administration
agree to fully fund this economic development stimulus program.
In order for the SBA to fulfill its mission, it must have partnerships. It must have the SBDC, it must have lenders, and it must
have borrowers who act as good partners with the agency. There
are certain rules about partnerships, and one of those rules is good
partners do not do things that harm their partners. It is extremely
important that we understand where the agency is headed, what
its long-term plans are, because lenders are businesses, and our
borrowers are, obviously, businesses, and businesses must plan in
order to know how to conduct their affairs in the future. Much of
the disarray that the agency exhibits today is very difficult for all
of us to continue to count on our relationship with it to benefit the
small business community.
Mr. WALLS. Thank you.
Senator PRYOR. Mr. Knight.
STATEMENT OF PHILIP KNIGHT, EXECUTIVE VICE PRESIDENT, SMALL BUSINESS LENDING, ARKANSAS NATIONAL
BANK
Mr. KNIGHT. Thank you, Senator Pryor. I appreciate the opportunity to meet with you today and speak to you on current and proposed changes to the SBA.
Let me begin by introducing my bank and myself. My name is
Philip Knight. Im the Executive Vice President over small business
lending for Arkansas National Bank. Were a locally owned community bank in Bentonville, Arkansas. We consist of nine branches at
nearly $500 million in assets, and we serve Benton and Washington Counties primarily.
For the past 2 years, ANB has been the leading SBA lender in
Northwest Arkansas, and in fiscal year 2003, ANB made 22 loans
for $7.8 million. Thus far in the first 4 months of 2004, weve made
nine loans for $2.3 million. This made ANB the fourth in loan volume and third in dollars in 2003, and fourth in loan volume and
fifth in dollars currently throughout the state of Arkansas.
At ANB, were dedicated to helping small business. The recent
actions taken by the SBA have given us reason for great concern.
The following will summarize some of these concerns.
The stability of the SBA 7(a) loan program, we felt like, is paramount. Caps and suspensions of lending are detrimental to the
overall program goals and the credibility of economic development
and stimulus. They cause lending partners and small business constituents to lose confidence in the SBA and its overall viability.
Will it be there when we need it, is the question. If we cant count
on it, why try to keep up to date with the training required to be
SBA savvy and why market it to our customers.
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Personnel reassignments have caused delays in the liquidation
process, without any indication from the SBA as to when case resolution will resume. Theres been no communication from the SBA
since the local Liquidation Officer, who we now know, Mr. Watts,
was forced to retire, and loan files were supposedly forwarded to
a central office right in the middle of the process. The words out
that the SBA no longer wants to discuss the liquidation cases, and
its discouraging their personnel from talking to us on the phone.
Were to be directed to a website for assistance.
Not only is this not very good customer service, it creates an adversarial relationship and will ultimately cause a lack of confidence
in the guarantee process and will no doubt cause a lender to think
twice about making future SBA loans. Again, the result will be less
capital available for Arkansas small business.
SBA transformation plans, apparently, include moving all loan
processing functions from our local district offices to a central office
or expanding the 7(a) program into an SB express with reduced
guarantees for the lenders. Neither option is good for small business, because it will most likely result in fewer loans being made,
less capital being available, again, for small business.
The SBA has not communicated with its lending partners, especially the local community banks. I read the testimony of Mr.
Bredsoe that said that they had talked to banks. I would suspect
if they did, it was not the small community banks. We have to rely
on third parties to keep us informed on what constantly is changing in the SBA. The SBA did not seek our input on reduced guarantees. Most small banks are not willing to accept that much risk
on these types of loans.
The Arkansas district office loan personnel provide daily assistance, both lenders and applicants. Theyre available to answer any
technical questions, as well as provide advice as needed, often conferring with us on eligibility issues, on structuring of loans, and
other specifics, and on particular complex loan issues. Not everything fits in a black and white box. They conduct training for lenders and informational seminars for clients. Without their help,
many lenders would be unwilling to participate in SBA lending and
will certainly be unwilling to accept the higher risk of flying solo
with a reduced guarantee.
SBA district personnel talk to and meet with small business
owners and potential owners every day. Without them, these people
would be left with no resources available locally and would be directed to a website. Again, not very good customer service. Nothing
can substitute for a friendly face when youre looking for help.
Senator what would your constituents think if they had no way
to contact you for assistance other than a website? Not everyone
uses the Internet. While there are a multitude of other issues surrounding the current proposed changes to the SBA including the
present lowering of the maximum loan size to 750,000 and denying
the use of piggyback loans, I do appreciate the opportunity to address these changes that I believe will have a definite negative impact on the small business community in Arkansas and those lenders who try to serve it.
Kevin.
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STATEMENT OF KEVIN HESTER, EXECUTIVE VICE PRESIDENT,
FIRST STATE BANK, CONWAY, ARKANSAS AND DIRECTOR,
NATIONAL ASSOCIATION OF GOVERNMENT GUARANTEE
LENDERS
Mr. HESTER. My name is Kevin Hester. Im with First State

Bank in Conway, Arkansas, and I would like to thank you for the
opportunity to testify today.
Weve been involved in the SBA program our full 5 years weve
been open, and we have achieved preferred lender status with the
SBA. Im also a Director of the National Association of Government
Guarantee Lenders. They are the trade association for the participants of the SBA 7(a) program, and our members account for approximately 80 percent of the 7(a) loans made annually. Commonly
called the SBAs flagship program, the 7(a) program has proved to
be an excellent public/private sector partnership.
Today the 7(a) loan program is operating at less than full capacity as a result of an inadequate 2004 budget request. Due to a
funding shortfall, the SBA closed its 7(a) program for a week earlier this year. When the SBA reopened the program, they imposed
a $750,000 cap and other lending restrictions. Sudden program
stoppages and administrative changes make it difficult for both
lenders and borrowers to use the 7(a) program.
Since the 7(a) program is such an important source of long-term
capital for small business, we ask for the Committees assistance
to see that the 7(a) program gets appropriately funded and managed to avoid the program disruption experienced this year.
On the heels of the inadequate 7(a) program budget request for
fiscal year 2004, the administration has proposed raising 7(a) program fees even more for 2005. The Presidents 2005 budget calls
for a zero subsidy rate and no appropriation. This proposal is a
non-starter. It is disturbing that the program would face further
fee increases, given that the Office of Management and Budget has
documented the fact that 7(a) lenders and borrowers have already
returned over $1.2 billion in excess fees to the treasury.
It does not seem to matter that the administration had a budget
bust this year, requesting too little program authority resulting in
loan caps and program restrictions that have harmed many small
businesses. It appears that in addition to many borrowers being
told Too bad this year, next years borrowers will be told More
fees.
With the 2005 estimate of demand of $12.5 billion, the administration has finally recognized that small business loan demand has
grown, albeit a year too late. We question, however, the need to
limit the program. If the administration wants to support the 7(a)
loan program and its mission to provide long term capital to small
business, why limit the program to anything less than the authorization limit of $16 billion, as proposed in the pending reauthorization bill?
Our small business customers need a reliable source of long term
capital, not rhetoric about how important they are. Small businesses need to be treated fairly, and they need the administration
and Congress to support the SBA and its 7(a) loan program. Thank
you.
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Mr. Hinton.
STATEMENT OF SAMUEL W. HINTON, SMALL BUSINESS
EXECUTIVE, METROPOLITAN NATIONAL BANK, LITTLE
ROCK, ARKANSAS
Mr. HINTON. Senator, I want to thank you for holding this hearing in Little Rock today, and thank you for allowing me to participate. My name is Sam Hinton. Im the Small Business Executive
for Metropolitan National Bank here in Little Rock.
I want to take this opportunity to recognize a very special guest
thats with us today, Mr. Tony Wilkinson, the head of NAGGL, the
National Association of Government Guarantee Lenders, in Stillwater, Oklahoma. I personally appreciate the fact that he came to
Little Rock to support small business in Arkansas today.
Based on my understanding of the scope and nature of this hearing, I will briefly address four different areas. First being the Little
Rock SBA district office. We work very, very closely with the SBA
district office. We ask the question, What do they do? Are they
necessary? Do we need them here? Absolutely. They provide so
much assistance and direction of a personal nature. They assist in
packaging, analyzing, and approving 7(a) loans.
As a lot of us who have been in this game for a long time know
a little bit more about it, but if we expect other banks in this state
to participate in SBA lending, it is critical that the SBA district office continue at this point.
They provide information and educational assistance to small
business. Information is the key to success. Most businesses fail
due to lack of management ability. We have got to have additional
training and support to help small business succeed. Well find access to capital if weve got the information and the management
ability to make them successful. Thats what the SBA helps with.
They support and sponsor two very important groups, the Service
Corps of Retired Executives, and the Small Business Development
Center.
Ive had the opportunity to work with small business development centers all over the Nation, and I promise you, we have one
of the best right here in Little Rock, Arkansas. We need to continue that sponsorship and that support. They help small businesses be successful. They provide information and knowledge on
a local level to a lot of different organizations and they sit on a lot
of different committees. We need a human being there, not a computer site. We need an SBA representative to help in what were
trying to do in Arkansas. Theyre a key point of contact for all
small business.
I, personally, at Metropolitan National Bank strongly support the
continuation of the SBA district office here in Little Rock.
The second point, 7(a) loan program. We are very heavily involved in the 7(a) loan program. Metropolitan National Bank did
not have a specific small business department until I came on
board. We are now developing that, and theres currently nine
members of our team. A large part of our focus is SBA lending.
I had a customer that had been approved for a loan that had
some cost overruns. I would normally have the authority to go into
a little bit of cost overrun with a percentage increase. I was not
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able to do so in this case. He could not order his equipment, and
had to slow down his opening.
We had another client that was approved for a $990,000 deal.
Cutbacks brought us back to $750,000. The deal just wouldnt work
at that level. Dont forget the fact were actually hurting people out
there. Were hurting business owners. I encourage that we fund the
SBA program. We need to get it back to the full maximums, we
need to allow for piggyback loans to allow banks to do creative financing on some of this and let us see what we could have.
The SBA express program, in my opinion, is not necessarily the
answer. I think we need the funding to make the program work.
Im all for efficiencies and synergies, and economies of scale, and
well participate at any level. The smaller banks in Arkansas dont
have the knowledge and expertise to participate at an express
level. We strongly encourage that you keep 7(a) as a viable, simplified, and affordable option for the borrowers in Arkansas.
As it relates to the microloan program, thats a tough program.
Its one thats hard to administer. I think the issues with microlending is the administration of it. If we come up with some kind
of simplified scoring mechanism, and treat it almost like a credit
card service that can be fast and furious and down and dirty, that
could be something we can do.
Overall, I dont believe that the microloan program would have
that much of an impact. If we lose the SBA and the 7(a) program,
were in much greater hot water.
Finally, assisting the SBA and the Arkansas business community. We need to continue to create efficiencies and economies of
scale as appropriate, but we need the SBA here. Lets dont forget
the human factor. It is very important to utilize high tech things
as much as possible, but keep the human factor here.
We, at Metropolitan, are willing to assist in any way. Were willing to carry our fair share. Besides the University and the SBA,
we are the largest supporter of the SBDC, because we believe in
them. Theyre doing a great job, and youve heard that already. We
will continue to support in any way and help and do our part. I
just encourage you to help us help them. Thank you, sir.
Senator PRYOR. Thank you for being here.
Mr. Wilson.
STATEMENT OF ODIES WILSON, III, INTERGOVERNMENTAL
RELATIONS MANAGER, CITY OF LITTLE ROCK, ARKANSAS
Mr. WILSON. Senator Pryor, and other distinguished members of

the panel, my name is Odies Wilson, and Im the Intergovernmental Relations Manager for the city of Little Rock. As part of
that stead, I manage the citys small business development activity
for small minority-owned and women-owned businesses. I also have
the distinct pleasure to serve as the Chairman of the Minority
Business Development Roundtable, which is a demonstration
project funded by the U.S. Department of Commerce for the development of small minority businesses.
Most of the comments that I would make in support have been
made by several members and the guests. I think I work very well
with Sam, I work very well with Arkansas Small Business Development Centers, but the basic comment I would make is that the sup-
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port and survival of small and minority businesses throughout this
state and this country are dependent upon the continued support
of the small business development administration projects and the
minority business development administration projects that we
work with so consistently.
I would say that one of my real pleasures in the last couple of
years, for instance, weve been working with Arkansas Small Business Development Centers on the entrepreneurial package. One of
the things that we really focus on is that one of the real challenges
in business, and particularly in Arkansas, is the African American
businesses, the business participation rate, as defined by the U.S.
Department of Commerce is one of the lowest in this country. Arkansas, Alabama, Pennsylvania, and Wisconsin are averagethe
business participation rate is based on average number of business
per one thousand. Arkansas is the 17th.
One of the things we focused on in the city of Little Rock is trying to focus on how we can increase the entrepreneurial participation of African American and other minority businesses within our
jurisdiction.
One of the real challenges has been aided by our partnership
with the Arkansas Small Business Development Centers. In the
last 2 years, for instance, weve had 131 businesses enrolled in that
program. 101 of those businesses have come out with full business
development plans that focuses on expanding and growing their
business.
Across the Nation, I think the business participation of Business
Development Centers is about 28 percent. We are about 78 percent
because of the focused intent on doing business with people. Also,
an outgrowth of that association with Arkansas Minority Business
Development Center is based on that demonstration project. Its a
2-year funded, $175,000, a year, and we put in about $45,000 per,
so about $220,000 over the last 2 years, the roundtable is Business
Development Center, we got all the participants that are actually
dealing with capacity building services throughout central Arkansas, but the State, Federal elements, but actually what we do is
every month, we give out mini grants, subgrants between $1,000
and $10,000 on best practices, on innovative approaches to enhancing business development activities.
In the last year, for instance, first year of the project, we did 18
projects, and those 18 projects accrued. We are tracking our activities between contracts and sales and activities over $32 million
worth of business activities. For a little under $200,000 Federal
money and the net. Im saying the dollar multipliers are just phenomenal, because we really do believe in the power of collaboration
and cooperation.
I think one of the things were missing, and I think Sam so ably
made the point, is that when you start depersonalizing, when you
start desympathizing, when you start downsizing and computerizing, you take out the human elements. I think why does our
system work better than other systems that were dealing with is
because theres a face, and theres a person. Theres a personal contact thats involved in what we do. People know that they can come
to our center, and theyre going to talk to someone thats going to
be able to give them some help, going to be able to negotiate the
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list of phone numbers and referrals and resource people, who does
what, and who can most ably assist them most expeditiously.
Because one of the things that really we focused on and one of
the realities thatand I work with Sam a lot, but I differ with him
a little bit, U.S. Department of Commerce assigns microenterprises
as enterprise that gross $10,000 or less. Roughly in the United
States of America, 35 percent of all small businesses, 35 percent of
all small businesses has $10,000 or less gross receipts. Then 39
percent of all African American business is similarly situated. I
think its very important that my closing comments would be that
we support not only the 7(a) loan program, also the SBA local office
and the personal contacts, but that we also support the concept of
microlending.
We are a Federal empowerment zone, we have a microlending
program, for instance, where we work with local lenders and Metropolitan Bank and others that we didthe SBA 80 percent, we
did the other 20 percent, so a hundred percent funded microloans
whereas we gave out over $500,000 worth of loans, and we had
zero defaults. We did a hundred percent loans, we did very liberal
credit requirements and those kind of things, and we had zero defaults on those loans.
The point that Im making, I think local participation, the focus
on partnerships, and the real focus on the viability of small and
because theres so many rippling effects when we talk about microenterprises, because were talking about the working poor, people
who are in business not because theyre not making a lot of money,
but because they believe in the business, because, like I said,
$10,000 microenterprises, one-third of most of the business in this
country and this state, and people are working to make a living,
and we should support them all we can.
I will close my comments with that.
Senator PRYOR. Well, thank you. That is one of the reasons we
are here today; to hear from folks out in the real world.
Mr. Harris.
STATEMENT OF SAMUEL L. HARRIS, III, EXECUTIVE VICE
PRESIDENT, ARKANSAS NATIONAL BANK, SPRINGDALE,
ARKANSAS
Mr. HARRIS. Thank you, Senator Pryor. My name is Sam Harris,

and Im the Executive Vice President of Arkansas National Bank
in Springdale, Arkansas. Its my pleasure today to have the opportunity to address the U.S. Senate Committee on Small Business
and Entrepreneurship on such an important issue and contributions made by the U.S. Small Business Administration.
In particularly, the SBA district office here in Little Rock. I represent Arkansas National Bank, one of Northwest Arkansas leading producer of SBA loans, and one of the top producers statewide,
as my friend Philip Knight mentioned earlier. My comments are a
little bit different than Philips, but along the same lines.
Our financial institution originates millions of dollars in SBA
loans each year. The SBA loan programs are an important part of
our efforts to reach out to our business communities and fund the
entrepreneurial spirit and momentum that is so very pervasive in
Northwest Arkansas. We could not be as effective in these endeav-
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ors without the valued assistance of the SBA district office in Little
Rock, Arkansas, and its outstanding staff of loan specialists and
servicing personnel.
Im here today to share with the Senate Committee as to why I
think its critical for the SBA to continue to have independent district offices in each state, and especially here in Arkansas.
Although it might appear that the SBA district office consolidation would on the surface solve program funding issues, in the long
run, I believe it would be detrimental to the program and cause future losses that would more than offset any savings that might be
realized by the consolidation of the program and the offices. Here
is why.
Having such fine representatives such as lending chief Bill Horn,
and his staff, in the Little Rock district office gives the SBA a local
presence that allows the agency to make solid lending and servicing decisions based on local knowledge of issues and the economic
climates of areas of commerce and different communities throughout the state. Also, a local office is in a better position to make suggestions to lenders, which leads to better structured loans, better
decision-making for the SBA, the bank and the customer. It has
been my experience that higher asset quality will yield fewer losses
in the business of finance.
Having the SBA district office here in Little Rock, Arkansas provides a higher quality product for the SBA and a better return on
the investment of the U.S. Government with a loan portfolio of
higher asset quality and fewer losses. The SBA has a long and distinguished record of being in touch with entrepreneurs and the
small business community as a nation. It would be well served to
remain a locally-based program with locally-based professionals.
Thank you.
We also have Tyrone Davis here, who is a small business owner.
Tyrone, would you like to say a few words?
STATEMENT OF TYRONNE DAVIS, OWNER, DAVIS OIL
AND PETROLEUM
Mr. DAVIS. Thank you, Senator Pryor. Personally, I have written

a response to your Senate Hearing that Id like to put in the
records. I am an avid participant of all the SBA programs. I started
my firm back in 1992 after a long history with an oil company.
Someone had mentioned SCORE, I participated in that.
One of the first things that I started my businessI started out
at the Arkansas Small Business Development Center going
through every training program they had. I would suggest any new
businesses that start off in business go through those training programs. In addition to that, the University had another program
called the Small Business Academy where they took graduate students to come over and look at my company and gave me a strategic plan so that I have something to follow. Im all for the SBA
and, Congressman, anything that you can do to save our district
office, Im all for it.
Senator PRYOR. Thank you so much.
You know, we have a lot of witnesses on this panel, and Im just
going to go through and put questions to the witnesses, kind of al-
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most randomly here, andI dont know exactly where to start, but
if I may start I will in the middle with Kevin.
I have a few follow-up questions on what you said in your testimony. One thing is, you said that you have an outstanding 7(a)
loan portfolio of about $13 million at your bank. Do you know
about how many businesses that translates into.
Mr. HESTER. It would be about 60 businesses.
Senator PRYOR. Do you have any sense of how many employees
are involved in those 60 businesses? Would you know that off the
top of your head.
Mr. HESTER. Im going to guess between 750 and 1,000.
Senator PRYOR. Yes. Also, you mentioned the SBA having a flagship program, a 7(a) program. One thing you touched on is it is an
excellent public/private sector partnership. It seems to me that we
need to be looking for those type of partnerships where we can
work with the public sector and the private sector and get out here
and do some good for some people. Seems to be a smart way that
we can spend our tax dollars, because the lenders have the risk,
and, you know, you have a guarantee from the SBA, but nonetheless, the way it is established is that we share that risk. You have
every incentive in the world to get out and make good strong loans
to companies that can get out and do some good with it. Still the
government provides that safety net.
Do you have any comments on that partnership you have with
the SBA?
Mr. HESTER. The partnership is very good. The lenders are asked
to do a lot of things, and we have increasingly taken more responsibility, but the SBA does need to be there to do certain parts of the
process. I think that changes that are being made in the system
and in the operations will take them out of that. They will not be
able to do the job that theyve done in the past. Especially without
the district offices. Arkansas being one them. They wont be able
to perform the parts of the partnership that theyve done in the
past.
Senator PRYOR. Right. I agree with you on that. You also mentioned in your testimony that the zero subsidy and the non-appropriations is a nonstarter for you. Tell me why that is. Why do you
feel so strongly about that.
Mr. HESTER. It just will not work. Two years ago we had a reduction in fees, and now were going to go back and ask the borrowers
to go back to the fee structure we had before. The zero subsidy
rate, we really dont have a whole lot of information of how they
calculate the subsidy rate at this point, and thats another problem,
an issue we have to deal with. The zero subsidy with no appropriations just will not fund the program. The program will not fund
itself.
Also, with a 50 percent guarantee, youre going to lose a lot of
banks. Philip mentioned it. Its the same situation with us. Youll
have a lot of banks that will not participate in a program, the fees
that theyll generate will be lower, and the program just will not
work.
Senator PRYOR. Right. I share that concern as well.
Mr. Wilson, let me ask you if I may. You mentioned the
microloan program, and I want to ask you about that, but also you
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talked about minority-owned businesses and the statistics here in
Arkansas. I think I know the answer to this, but I would like to
hear it from you.
Why is it important that we should try to have minority-owned
businesses in this state and in this country? What is the value of
that to our economy and to our society?
Mr. WILSON. I think the biggest pointjust take the Arkansas
references. Roughly 20 percent of businessI mean, the population
of Arkansas is minority, and were talking about African Americans, Hispanics, Asian Pacific Islands, American Indians, the Federal definition. Right now, that business participation rate that I
was referring to is aboutits less than 6 percent. In reality, one
of the things you find thatin good times and bad times, peoples
economic status and participation in the American dream really establishes how they view their whole lifestyle.
I think that it has a very strong implication, and you have contributing factors on crime rates, on unemployment rates, on poor
health, on education. I think it has a rippling effect as how that
impacts us.
I think the best approach to equity in America or in our income
is not so much to focus on civil rights but silver rights. Its actually
trying to do all that we can to make sure that everybody participates as best they can in the economic depressed prosperity of our
country. I think thats one of the things that we really try to do.
If those special efforts are not encouraged, just like desegregation
of education, and some other historical things would not have occurred without the assistance of the strategic and very pointed assistance of the Federal Government. I just dont think it occurs naturally. You have to do extraordinary efforts to remedy extraordinary deficits.
I also think that statistical anomaly you have to do all over this
county. If thats the case, just like were putting extraordinary resources in the rebuilding the infrastructure of Afghanistan and
Iraq, I think that same concept, we can justify putting some extraordinary remedies to addressing those disparities.
Senator PRYOR. Well, let me ask then a follow-up with the
microloan program which you referred to in your testimony a few
moments ago. Given your experience with the program, do you
thinkand by the way, as background, you know the Presidents
budget would eliminate the microloan program and fold it into
some other programs, but do you think the microloan program as
it exists today has been satisfactorily implemented to help those
people who really need the help?
Mr. WILSON. No, I do not. Simply becauseand I think Sam
made a good point. I mean, in good banking operations, microloans
does not make good banking sense, because of the size of the loan,
the service on the loan, and all those things.
Thats what Im saying, the whole focus on doing extraordinary
things. Like the programs that we dealt with in Pulaski County,
for instance, like I said, we went above the 80 percent SBA guarantee, and we did the other 20 percent. Its a 100-percent guaranteed loan. In other words, the bank has no risk, zero risk.
Then we had ADFA, Arkansas Development and Finance Authority, a public and another state agency to do the administration of
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the loan. There was no added administrative over here to the bank.
In other words, you made it easier for them to service those loans.
We service those loans through Metropolitan Bank, a local bank.
Like I said, at this point in that program, zero defaults.
The whole program is based on the fact that they already had
to go to a bank and been turned down. Then we would get them
after they got turned down. We would look at them individually,
case by case, on the viability of their business concept and the profitability of their loans and so forth.
A number of those loans were no defaults, and a number of them
have become traditional loans from Metropolitan Bank. Our point
is that you have to have extraordinary efforts on the bottom end,
and this may not really be due to the business participation rate,
because we start talking about people working, and were talking
about less than 10 employees, and they might have a large growth
revenue for their business. They might go through a couple of hundred thousand dollars, but when you start talking about their gross
receipts at the end of the day, with those people with less than 10
employees, their gross receipts is $10,000 or less. Thats what the
point is. Thats 35 percent of small businesses in America.
That is the danger that we talk about when we start talking
about the job creation. It creates a lot of jobs on the lower end of
the spectrum, a lot of people that would be left out of the process
otherwise.
Senator PRYOR. Mr. Sam Walls, let me ask you, if I may. I think
you said you are the largest SBA 7(a) lender in the state?
Mr. WALLS. Yes, sir.
Senator PRYOR. Do you know off the top of your head what the
average size of your loans are? Do you have an average on that?
Mr. WALLS. Senator, were somewhat different than a bank in
that we are by legislation prohibited from competing with banks.
We are, like SBA, a gap filler, between what can be obtained from
the traditional capital markets and what the borrower needs. As a
consequence, we do not do the small loans.
Senator PRYOR. I see.
Mr. WALLS. Small, being defined as less than a hundred thousand dollars. Unless it is for a minority or a women-owned business. We will do those. Our average generally is going to be something like $300,000$500,000. It will vary between, say, $250,000
and $400,000 in any given year.
Senator PRYOR. Yes. Tell me the challenges from your standpoint, the challenges that smaller businesses have in getting capital. What makes it so hard for small companies to have access to
capital?
Mr. WALLS. Well, I think in the context of the SBA, its clearly
a matter of risk for the lender. A lot of small businesses dont have
the track record or a long enough track record that the lenders can
get comfortable with. Sometimes its a matter of collateral, the inadequacy of collateral.
The fundamental tenant of lending is that your first way out is
through cash flow and, hopefully, profitability, and the second way
out is collateral.
Senator PRYOR. Yes.
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Mr. WALLS. If you make a loan that does not have any collateral
or a guarantee, youre not lending, youre venture capitalizing. A
lot of bankers find that out the hard way.
Senator PRYOR. That is right.
Mr. WALLS. I think thats where the SBA product steps in and
makes a deal doable for a lender that otherwise would not be doable. The typical small business, much like has been referred here
today, generally doesnt have a lot of assets that would shore up
a larger credit.
In our case, were dealing with bigger numbers, were talking
about pieces of capital equipment, buildings real estate, things of
that nature.
Senator PRYOR. Yes.
Mr. WALLS. One the hardest types of capital to get is working
capital, regardless of the size of the enterprise. I think thats an
area where the SBA is particularly important.
Senator PRYOR. Good. Now, I am going to ask Philip Knight this
next question, but Im going to base it on something you said, Mr.
Walls a few minutes ago. You said that good partners do not do
things that harm their partners, and that is one of the principles
in partnership, but, Mr. Knight, you, I think, referred to in your
testimony about how closely you work with the SBA and some of
the concerns you have.
Describe for me your working relationship and your partnership,
with the SBA here in Arkansas and how that relationship has been
progressed.
Mr. KNIGHT. Okay. Couple of different avenues. Let me start
with the loan processing side. It is very typical for me to contact
one of the loan officers. Were fortunate to have in our area a loan
officer in Fayetteville that serves Northwest Arkansas, and, yet,
sometimes he doesnt have all the answers, and well come to Little
Rock to loan officers here. It is very typical to call and ask eligibility questions.
If youve seen the SOP, you know its a substantial manual, and
there are all kinds of rules and regulations were to follow in order
to ensure that were getting our guarantee on our loan. Sometimes
there are issues that come up that fall somewhere between the
white and the black, and we have to make judgment calls.
I can tell that you right nowIve worked in SBA in two different districts, and the Arkansas district interprets things different than the Dallas district that I came from. I think that thats
true largely because of the uniqueness that is our state. Thats
probably the same way across the country. I would guess that each
of the district offices tailor their interpretations around their local
regional economies.
Now, if we go to a centralized processing, than what we have
here is someone who is looking at a loan in Arkansas, at the same
time someone is looking atthat same person may be looking at
a loan in Los Angeles. Theres just a myriad of different.
Senator PRYOR. Right.
Mr. KNIGHT. I mean, we dont need to go into it
Mr. KNIGHT [continuing]. But all of the difference we have there.
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Senator PRYOR. This kind of goes back to having that familiar
working relationship with people in a so-called local office
Mr. KNIGHT. Absolutely.
Senator PRYOR [continuing]. That understand the terrain, so to
speak, and not some toll free number or website. I think that you
mentioned that no one knows what kind of service you are going
to get there.
Mr. KNIGHT. Absolutely. On the liquidation side, you know, Ive
worked with David through liquidation, and, in fact, I worked
through my very first liquidation with David. I called him, and I
said, Davidknowing David for quite a while before we had that
situation, I said, This is my first one. Would you hold my hand
and walk me through it? I cant do that
Mr. KNIGHT [continuing]. Going to Virginia or Kentucky or Sacramento, or wherever its going to be.
Senator PRYOR. Across the country.
Mr. KNIGHT. Thats right.
Senator PRYOR. Now, let me, if I can, switch over to another witness here quickly.
Mr. Hinton, I was going to ask you about your testimony, I think
you were very clear that you think its important that we continue
to have an Arkansas presence for SBA and how important the local
offices are, and many of your comments addressed the 7(a) program. In your written comments, you touch on the microloan program. Let me ask this: As I understand the microloan program,
these people whothese microborrowers sometimes have average
credit scores around 500, or something around that number, but I
think the average size of these loans may be around $11,000. Do
you think that if the microloan program is eliminated at the Federal level, do you think that private entities will come in and have
a market there for those borrowers?
Mr. HINTON. No, I do not.
Senator PRYOR. The economics do not work. Is that right?
Mr. HINTON. Yes, I mean, were talking about success, and success for a small business owner encompasses many things, and
were kind of preaching to the choir here, but experience, management ability, equity injections, cash flow, profit, and credit worthiness are the considerations.
When youre trying to consider how to make a $5,000, $10,000,
$15,000 loan, first of all, you worry about the equity injection. Most
success stories are based on the fact that it does require some ownership or equity in the business, that the fact that having a personal ownership does ensure a little bit better chance of success.
You know, you start questioning someone that really cant come
up with $5,000, then the economies of scale, the fact that most traditional financial institutions just cannot do this. Its not something
that can be afforded. I am all for that, and I work very diligently
to help smaller clients. Thats where I think you make the most impact. Its not about maybe the number of jobs, its that father or
mother that has a child, and theyre trying to do good and make
a living in this country, and I always try to simplify things down
to the basic level, and I think thats what dictates our decision, or
should. I still say theres a smarter way to do this.
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We keep trying to do the same old thing, and that keeps on failing. You know, certain groups have figured out how to do this. I
mean, you know, theres ways to do mass type of financing based
on scoring mechanisms that we can help a broader segment. You
know, you get a credit card application almost every day. They take
much lower credit scores, they operate on a system of numbers. It
has to be fast and efficient.
For me to invest time that it would take to lend someone $5,000
or $10,000 is not necessarily the most reasonable way. I am all in
favor of microloans supporting the smallest of small business, but
in a much more creative way.
Mr. HINTON. It still gets back to lets save the 7(a). It will be a
moot point if we dont save the SBA and the larger loan programs.
Senator PRYOR. Yes. Mr. Harrisby the way, we have three
Sams on the panel. Sam Harris, you came down from Springdale
today. Correct?
Mr. HARRIS. Thats correct.
Senator PRYOR. People in Arkansas are sensitized to the fact that
that part of the state has a robust economy, that, really, theres
some exciting things happening there in terms of population
growth, and opportunities there. Nonetheless, today youve come in,
and you talk about how important the SBA is, even in that environment.
I would like, if you could, to comment on that, because I know
the Northwest Arkansas economy, and the economy where you are,
has suffered some in the last couple of years, 3 years, theres no
doubt about that, but also its still considered a very strong economy by Arkansas standards, and so I would like to hear a little bit
more about the SBA in a growing economy, a strong economy. If
you could comment on that, I would appreciate it.
Mr. HARRIS. I think some of the comments have already been
made with respect to why its important to have the guaranteed
loan program for the lenders; to entice us to get out there and
make loans. Even in a good economy, that doesnt mean that there
arent projects that arent going to require the loan program. A
good economy doesnt mean that everyone can go to a bank and get
a conventional commercial loan.
I think many of the situations are the same in a good economy
as they are in maybe an economy thats not quite so robust. People
still need working capital loans for their businesses, and some of
the points that were made earlier about some of the things that
Sam talked about, about the collateral issues can be an issue.
The Low Doc program and the 7(a) program are excellent programs that allow lenders to get out there when a business has an
excellent cash flow, but maybe they have some other weaknesses,
but its still a strong business that creates a lot of jobs, its a profitable business, the bank decides to go ahead and do the project, and
that company grows.
I know Philip and I could sit here for hours and talk about our
success stories as well as the rest of the lenders in the room from
these programs. I think now more than ever we need to, you know,
focus on this issue. Lets get it restored, lets get the full funding
on the programs, and move forward with that.
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I dont think because were in a robust economy that we should
back off of the programs.
Senator PRYOR. Right. I appreciate that. Yes, sir.
Mr. KNIGHT. I might add, Senator Pryor, that with a robust economy, there is more needs for service-oriented business. I mean, yes,
Wal-Mart is the largest retailer and the largest company in the
world, but they have to have a whole array of different support
businesses around them. Those businesses come to us and dont
have the collateral, and they dont have the history, start up businesses.
One of the things Mr. Walls didnt talk about, but is notorious
in lending, there are certain types of businesses that are more risk
oriented. Without the SBA, were not going to make these loans to
these types of businesses. That is one of the areas that the SBA
is very important for. In a robust economy, there are more businesses starting, and they are more risky.
Senator PRYOR. All right. Mr. Blair, I am going to finish these
questions with you on this panel, and that is, you have just gone
through a process with the SBA which was not fruitful, as I understand it. How was it dealing with the SBA? Were they helpful? Did
you run into any bureaucratic red tape, so to speak? I mean, how
was it to deal with the SBA?
Mr. BLAIR. Well, actually, I guess the process was made easier
by Sam Walls company, so, you know, my dealings with them was
pretty good.
Senator PRYOR. Yes.
Mr. BLAIR. You know, the bottom line, however, became they
werent going to fund the loan
Mr. BLAIR [continuing]. In the manner that we needed it funded.
I guess, ultimately, it didnt work out, and it wasnt good, but
Senator PRYOR. Do you have that access to capital now? Are you
going to go back to the SBA or have you already figured out another way
Mr. BLAIR. Were scrambling right now.
Senator PRYOR. Okay.
Mr. BLAIR. I dont know. I dont know just exactly how were
going to approach that.
Mr. WILSON. Senator, if I may.
Senator PRYOR. Yes, sir.
Mr. WILSON. Theres some public policy implications. I think
Janet made the point that the authorization first, the appropriations, I think is real important, in that, you know, like for instance,
the SBC Centers, the $125 million authorization versus $88 million
appropriation. I think that to continue to fight to have those authorizations fully funded, when theres extraordinary efforts. Also,
the flip side of that, too, is even within the $88 million appropriation is actually to focus on setting priorities.
Senator PRYOR. Yes.
Mr. WILSON. And put pressure on those administrative agencies
to set priorities, and I think thats one of the things I would like
to bring forth even with limited knowledge and limited time. Certain things in the hierarchy of needs are more important than others.
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Senator PRYOR. Okay. Lets go ahead and change panels. I appreciate you-all coming in and your time. Again, the record will remain open. Anything you think about later that you may want to
add, thats great, and we may have some questions that we may
present to you here in the next few days because we did run out
of time today.
Lets go ahead and change panels. Were going to have our last
panel come in. Well just take a couple of minutes to break as we
do that.
[Wherein a break was taken from 12:25 to 12:36.]
Senator PRYOR. Lets reconvene. We have Charles King and
Janet Roderick on the panel. Again, you-all know the format. Try
to talk maybe 3 minutes, 5 minutes at the most.
Mr. King will you lead off?
Mr. KING. Yes. Thank you, Senator. Janet and I were just talking, I want to thank you, first of all, for saving the best for last.
Senator PRYOR. Exactly.
STATEMENT OF CHARLES KING, EXECUTIVE DIRECTOR, ARKANSAS REGIONAL MINORITIES SUPPLY AND DEVELOPMENT COUNCIL
Mr. KING. We would like to say thank you, first of all, for bringing this hearing to Little Rock, as well as say thank you for the
support we receive not only from you but your office staff in particular. All of them have always been very responsive to every request weve had, and I think thats important as we move forward
in this type of process.
My name is Charles King, and I am the Executive Director of the
Arkansas Regional Minorities Supply and Development Council.
Our organization is a private, nonprofit organization. We were established in 1978, and our mission is to promote the development
of business opportunities between minority business enterprises,
corporations, and government agencies.
We undertake a number of activities to accomplish our mission,
and these activities include but are not limited to certification of
minority businesses, facilitation of business and contract opportunities, between minority vendors and the business community, training workshops, annual minority business opportunity trade fair,
networking opportunities, technical assistance, and advocacy efforts.
I want to say up front that through all of these efforts, not one
week goes by that we do not have the opportunity to refer at least
one client to the SBA. Our membership consists of some of the
most recognized and respected corporations in the world.
Were a membership-based organization, corporate membership
based. That includes Wal-Mart Stores, Tyson, ALLTEL Communications, Comcast, Nestle, and Enterprise Rent-A-Car, just to
name a few. I say that because actually what were talking about
today in capitalizing minority-owned and small-owned businesses,
these corporations are really the end users. Many of them are end
users simply because some of them have reporting responsibilities
to different Federal agencies that they work with. These corporate
members rely on us to produce qualified, certified, minority businesses to respond to procurement and contract opportunities. These
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companies are very reliant on small business administration programs.
The support offered by the SBA, in many cases, is the only assistance available to allow small disadvantaged businesses to compete. The programs that are most crucial to the minority business
community in Arkansas is the 7(j) and (a) program, the microloan
program, and the outreach officer. It is our understanding that
these programs are at risk of severe cutbacks or total elimination.
We believe that this would be a death blow to most of the minority
businesses that are poised for growth in Arkansas.
Most business owners would tell you that the No. 1 need for minority business owners is access to capital. However, we believe
that the true No. 1 need is access and information, much like that
offered by the 7(j) program. Small and minority business owners
are in need most of learning how to access available resources.
They dont have the resources to hire someone to do what a large
majority firm would do to hire others while they continue to run
their businesses.
The assistance offered leads to success in minority business applying for badly needed capital.
Now, I was reading that in Senator John Kerrys remarks that
40 percent of the loans that are done across the country are 7(a)based loans. In Arkansas, the SBA 7(a) loan guarantee program
provides over 80 percent of the loans to small businesses in our
area. I would also add that the microloan program, which I believe
is critical to Arkansas-based small and minority-owned businesses.
Though its not heavily utilized, its something that is very, very
well needed in Arkansas, and I believe it would be a crime if that
program were to be eliminated.
The 7(a) loan program, the terms are easy on the already
strained pockets of small businesses. One example is one of the minority businesses we have with us today in this room, and thats
the Davis Petroleum Company. Davis Petroleum Company is a
small supplier of antifreeze and petroleum-based lubricants. In
1999, he received a 7(a) loan of $250,000. This loan allowed him
to expand his business and hire additional employees.
As a result of the assistance that Mr. Davis received, he was
eventually named by the U.S. Defense Systems in Richmond, Virginia, as a top quality supplier. Thats the organizations highest
award. The assistance the Davis Petroleum Company received
along the way allowed him to be prepared to receive this recognition, as the defense system was able to receive top quality service
from a supplier who just happened to be a small disadvantaged
business. It is likely that without this loan, he possibly would not
be in business today.
In Arkansas, over the last 5 years, the SBA has issued approximately 1,744 loans. These loans had a value of over $422 million.
300 hundred of those loans were to minorities, 473 were to women,
and 276 were to veterans. So far this year, the agency has issued
158 loans with 17 minority, and 30 women loans, and 28 going to
veterans.
As a rural state, Arkansas has over the last 2 years, issued 194
loans to rural areas. Two years is the longest available tracking for
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rural loans. I would note that Arkansas is considered mostly a
rural state with only 14 areas being considered urban.
Now, its our opinion that the overall budget request, which is
less than 15 percent of last years budget, is a terrible disappointment. The small businesses account for a majority of the jobs created in this country each year, the quality of work is high, and the
pay allows families to pay their bills, pay their taxes, and provide
for the betterment of the community. The SBA has become the lifeblood of this industry of small businesses. Continued cuts would
only serve as a death blow to the continued growth and development of one of the countrys most vital resources, the small business.
We humbly request that the SBA not be cut, but rather be fully
funded to allow the continued operations of an important program
that we talked about.
Senator PRYOR. Thank you. Janet.
Ms. RODERICK. Thank you. Again, my name is Janet Roderick,
and Im the State Director for the Arkansas Small Business Development Center, and I appreciate the opportunity to speak and address this group one more time. I want to talk about the lowering
of the cap and the temporary freeze and how that impacted our clients.
When the freeze went into effect, we did a quick and dirty survey
of our clients throughout the state, and we found out that we had
25 SBDC clients with over $8 million in loans that were somewhere
in limbo, somewhere in the process.
Senator PRYOR. Im sorry. How many again.
Ms. RODERICK. Twenty-five businesses with a little over $8 million that were frozen. The SBA district office here in Little Rock
worked very hard to do what I would call the right thing by those
clients and keep them informedand those were just our clients.
Those are not all the SBA loans there were. They did the right
thing by trying to keep everybody informed as best they could, but
they were not receiving any information out of the central office.
Since that time, the freeze has been lifted; however, the lower
cap of $750,000 remains in effect and still has negative impact on
our clients.
More often than not, these are businesses that have the potential
to have a significant impact on job creations. Let me give you an
example.
An Arkansas-based technology business is poised for tremendous
growth. This business has been in operation for more than a decade
and has a nationwide customer base, and it employs about 30 people. After years of research and development, the business is now
ready to launch a new product. This new product has already generated national exposure on news outlets such as CNBC and fuels
excitement in their customer base and beyond. In order to finance
the growth, this business worked with one of our SBDC consultants
to develop an SBA loan proposal in the amount of a million dollars.
This was right towards the end of the year. Then, without much
notice at all, and around the Christmas holidays, the SBA lowered
the cap.
This new SBA loan cap of $750,000 is a barrier to this business,
as well as many other businesses in Arkansas and across the Na-
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tion. These businesses need capital to grow and prosper, and the
SBA loan program provides access to capital that might otherwise
be unavailable. This new loan cap punishes successful established
businesses that aspire to take their businesses to the next level.
The second issue I want to speak about, concerns a news release
from the SBA dated February 14, 2004. The SBA proposes to cut
the SBA guarantee to 50 percent, increase the cap to two million,
and have lenders apply using their own forms and processes instead of lengthy and burdensome government forms. The SBA
says this will add 500,000 jobs. This might be true in big cities
with large banks, but its certainly not true in rural America.
Senator Pryor, as youre aware, start-up funding provides a real
challenge to small businessesto the small community banks.
While these banks are active members of the community that the
small businesses will operate in, and they have a vested interest
in helping provide capital for economic growth, the lenders are also
well aware of the risks involved in the small business operation,
start-up particularly. These problems of survival rates for small
business start-up, the inherently limited collateral of assets available to be pledged to secure loans, equity injection requirements,
and in some cases, previous credit issues, makes it extremely difficult for the lender to provide commercial loans without a guarantee program.
Many of the commercial loans made to start-up businesses in Arkansas are for $150,000 or less, which the SBA currently provides
an 85 percent guarantee. For many of these SBDC clients, its the
banks ability to receive the guarantee that is a critical element to
receiving bank participation in the venture.
Although lenders hope they will never have to liquidate the loan,
and the business will be successful, they are well aware of the survival rates of small business start-ups and generally rely on this
guarantee to secure the loan.
The end result of this proposal for small businesses in rural Arkansas will be significantly fewer small community banks using
the SBA loan program with only a 50 percent guarantee, significantly fewer start-up businesses being funded, which will have a
negative impact on community economic vitality, more small businesses establishing and expanding operations by using the dreaded
credit card form of financing their business with the excessive interest rates, and those small businesses that do not receive a commercial loan, receive a commercial loan without the SBA guarantee, may jeopardize the company futures by accepting unfavorable terms such as short term maturities with balloon payments,
and having no assurance that these bank notes will be renewed
when theyre due.
Senator Pryor, I have e-mails from several banks located in the
northeast part of Arkansas who responded to an e-mail from Herb
Lawrence who is our center director at Arkansas State University
concerning the SBA proposal. Ill be happy to submit them for the
record. In closing let me say, Senator Pryor, you have repeatedly
spoken out against government policy groups that were not in the
interest of Arkansas small business sector. I hope you will speak
out against what I fear is the gradual dismantling of the SBA and
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the continued failure of the government to adequately fund small
business management assistance programs. Thank you.
Senator PRYOR. Thank you. And rest assured, I will speak out
against it.
Now, let me ask you, Janet, you know, I asked earlier, is the
SBA going in the right direction or the wrong direction? Have I already asked you that question?
Ms. RODERICK. No, but Ill be happy to provide you an answer
to that.
Senator PRYOR. I would like to hear your comments on that, because, like I say, I asked this question in Washington, and there
was a panel of probably four or five, I do not remember right now,
and they all had very strong opinions on it. I would like to hear
your opinions because you have a different perspective than most.
Ms. RODERICK. Well, certainly, I would say, No, I dont believe
theyre headed in the right direction. Here in Arkansas and
throughout the country, particularly in rural statesIve been the
State Director of probably the most rural state, I was the State Director of the Small Business Development Center in Alaska.
We know that people need the one-on-one contact. We know that
we still work with, Excuse me. I know that you work here. Can
you help me out? We talked about using the Internet and we use
it a lot. However, there are many of our small businesses who still
do not actively use the Internet, particularly those who are located
in rural parts of our country because they dont have access to high
speed Internet. Thats changing, but its changing slowly.
Doing away with the district offices, and I do believe theyre looking at the dismantling of the SBA as we know it now with district
offices, is absolutely the wrong direction for our business community.
Senator PRYOR. Let me just run through for the audience, so you
will understand what we are talking about here, some of the cuts
that we are looking at in the Presidents budget for the SBA, and,
therefore, cuts in trying to help small businesses in this country.
The 7(a) loan guarantee program would have zero funding under
the Presidents budget. The microloan program which we have
talked about to some extent today, will be eliminated under his
budget. There will be several programs eliminated for entrepreneurial development, counseling, business resources, and outreach.
In fact, of 20 programs, the Presidents budget eliminates 10 of the
programs. You know, we could run through a long list of what they
arewell submit this for the record. Certainly, it is of great concern to small businesses.
We hear about it all the time in our office, and just talking to
people, I hear about it every time I come back, it seems like.
Also, Mr. King, a few moments ago you talked about 7(j) and how
effective it has been and what a good program it has been. Under
the Presidents budget for fiscal year 2005, they will cut it by
$500,000. You may think, Well, what does that really mean?
Well, that is a 25 percent cut. That is a 25 percent cut in that program.
In fiscal year 2004 it was a $2 million line item, and in this fiscal
year that we are talking about now, it will be a $500,000 cut on
that. It will be $1.5 million.
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Mr. King, let me, if I can, focus on you for just a moment. We,
actually, are pretty far over time here, so I am going to keep my
questions very brief.
In your view, how is the SBA helping Arkansas and helping the
Nationss economy? I mean, just in general terms, how does it help?
Mr. KING. Its a tremendous help. Let me just piggyback on the
comment you made just a minute ago about the 7(j) and the type
of outreach. Its my understanding from reading that the outreach
offices will be eliminated. Ive spent a great deal of the last 6
months of last year on the road with who would be considered the
outreach officer here in the Little Rock office, just educating our
citizens across this state on what is available to them and then
how they should apply for the assistance that they can get through
the SBA.
Something that these bankers really appreciate, I know youve
talked to a lot of great bankers, and we worked with a lot of them
that were here today, but what they dont have time to do is something that really the rural part of Arkansas really needs a lot of,
and thats a lot of hand holding, a lot of hands-on approach. Thats
going to be lost because that person is going to be eliminated.
Because we are such a rural state, and someone said that all politics are local, all business is local, too. People want to be able to
reach out and touch someone, especially a state like this where you
dont have people that are accustomed to thick forms and things of
that nature. The overall impact is just tremendous, within the minority business community.
You asked the question of one of the other panelists, and I was
sitting there going, Say something. That is that in minority businesses, 90 percent of the employees of minority business is a minority. Youre talking about the very basic of employment, family
support, community building, and things of that nature. The SBA
is very much a part of that foundation.
Senator PRYOR. Well, that is my impression as well. I thank for
you that answer. I am going to ask you a question that I asked
Miss Roderick just a moment ago, except a little different twist.
I asked her if in her view the SBA was going in the right direction or the wrong direction. You talk to a lot of businesses in this
state every day; what is the word out there in the business community about the direction the SBA is going in light of this Presidents
budget proposal.
Mr. KING. People are very nervous. If programs like the
microloan program is eliminated and the 7(a) loan program is severely cut back, what its going to lead to, I believe, is a lot of small
and particularly minority businesses becoming subject to more
predatory lending practices. The factoring organizations will grow,
the small amount of profit that theyre making now will be taken
away by those factoring organizations. Theyll go to thesethey
may even resort to check cashing places to get loans just to make
payroll.
Because the average minority business has less than two employees right now, but theyre poised for growth more than that.
Theyre going to be going to practices that wont allow them to
grow anymore, if that happens.
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Senator PRYOR. Well, thank you. I want to thank everybody for
participating in this hearing. We have had a lot of people here
watching, and I am glad you-all are here, and appreciate you-alls
input as well. We have gone over our time here.
UALR has just been fantastic about letting us use their facilities.
Again, we want to thank UALR and all the people involved in this
hearing. The staff that came down from Washington, we appreciate
you as well. I wanted to remind everyone that the record for this
hearing will remain open for 2 weeks, and we welcome any submissions that anybody wants to make, any thoughts, comments, whatever it may be.
Let me give you one bit of advice, though. Do not mail your submissions to Washington, because our mail system up there, due to
the Ricin and anthrax-laced letters, is kind of all jumbled up right
now. I would highly recommend that you mail those to our Little
Rock office, and our office in Little Rock will be sure that we get
it to the staff in Washington. Please just mail that to the Little
Rock office, or you can contact Derrick Freeman, who is sitting
here behind me, or Walter Pryor, who is sitting here behind me,
too, the folks I have working up in Washington who do a great job
and who really helped organize this whole thing.
Anything else that we need to cover?
With that, this meeting is adjourned. Thank you so much.
[Whereupon, at 12:58 p.m., the Committee adjourned.]
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APPENDIX MATERIAL SUBMITTED
(39)
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Small Business and Entrepreneurship in Arkansas: Access To Capital and Service Delivery

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Small Business and Entrepreneurship in Arkansas: Access To Capital and Service Delivery

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S. HRG.

SMALL BUSINESS AND ENTREPRENEURSHIP

COMMITTEE ON SMALL BUSINESS AND

FEBRUARY 19, 2004

Printed for the Committee on Small Business and Entrepreneurship

U.S. GOVERNMENT PRINTING OFFICE

For sale by the Superintendent of Documents, U.S. Government Printing Office

12:42 Aug 19, 2004

COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

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APPENDIX MATERIAL SUBMITTED

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SMALL BUSINESS ASSISTANCE IN ARKANSAS:

UNITED STATES SENATE,

OPENING STATEMENT OF THE HONORABLE MARK PRYOR,

Senator PRYOR. Well, it looks like most everybody is here, maybe

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Mr. WATTS. Thank you.

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Mr. GRIMES. I am Keith Grimes with Pine Bluff National Bank.

Ms. RODERICK. Thank you. Senator Pryor, and representatives of

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Mr. GOMEZ. Good morning. My name is Eduardo Gomez. I am a

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Mr. BLAIR. Im Daniel Blair. Im the General Manager for Daniel

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Mr. HESTER. My name is Kevin Hester. Im with First State

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Mr. WILSON. Senator Pryor, and other distinguished members of

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Mr. HARRIS. Thank you, Senator Pryor. My name is Sam Harris,

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Mr. DAVIS. Thank you, Senator Pryor. Personally, I have written

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